Posted in
Education
By: Tom Gentile
on August 23rd, 2023
Last Week, the Bears awoke as we moved from pullback buys to a change in sentiment. As all eyes are on Jackson Hole this week, the FED now looks to new inflation numbers and of course future intentions are on interest rates. Meanwhile our eyes once again will focus on the end of Earnings Season, but this week it’s all about the Bears.
Now last week I showed you this chart of the SPY etf. In fact, heres the exact chart I talked about. I wanted to bring this up, and compare it to what has happened in the span of a week…
So last week the SPY dropped 3 percent, but whats more important is how much volatility rose last week… 15% or about 5x the pullback move in percentages. Whats spooking everyone?
Well it’s a combination of things… First, yields climbed again as the TLT and Bond funds, which are usually accurate in forecasting future interest rates had a change of heart. We were expecting 2 rate cuts into years end, but that got changed from cuts to hikes, to now the Fed wants to make a decision meeting to meeting.
This lead to a drop in Bond ETFs which is now forecasting even higher yields… And its not just the stock market that’s being affected…
This is the price of GLD, the streetracks Gold ETF… Interest rates hit most commodities just like the stock market. GLD dropped about 2% last week and is now more than 10% off its YTD highs.
Take a look at this chart of Bitcoin… its down nearly 10% in just the last week, most of it related to a sale by Space X, but instead of bouncing like it has on past negative news, it seems to be trading at the low end of last weeks prices. Chalk that up to Jackson Hole.
So as I said last week, while everyone is focusing on news and opinions, lets be pattern traders…
And like I also said last week, though theres no guarantee that patterns are 100% foolproof, I want to show you my top 3… my only 3 bearish patterns going into the end of August… Lets take a look at each.
Macys has been moving down on the chart for months now, but the week prior to earnings its 4-4 with an average drop of 7.7% the week into earnings. What also looks good is the fact that implied volatility (that’s the blue line) has gone up prior to every earnings, and that’s good for put buyers.
Toll Brothers is a home builder if you didn’t know it, and you might think I am wrong about this one… because the trend is up. I am not looking at the monthly trend here, I am focusing on the week before earnings, which for this case, has been down an average of just under 6% in the last 4 quarters.
Finally, PDCO… this one is 3-4 in prior moves down a week before earnings, but the volatility is all over the place… in fact I removed it from this chart because it was so uncertain. Best way to play a stock like this is short the stock a week prior to earnings. The last year would have gone 3-4 in this pattern with an average move of 5.5% on the stock.
Which one is the Best? Now that’s a loaded question, but if we look at them on a table that might help…
These are ranked by the amount of movement down prior to earnings. Looks like in terms of percentage moves, Macy’s is first in the bearish parade. Keep in mind that both Macy’s and Toll Brothers are at the end of their cycle though… Patterson ranks 3rd, but their options are not as liquid so in my humble opinion that’s a stock trade at best…
Now again, I just showed you stock patterns only. If you can use options, buying premium a week before earnings has been shown to work, but that also means closing the position and stepping aside right before the announcement.
Thanks for watching, share comments with me on how your using these type of patterns in your trading. Next week I will be looking at the month of September… cya then! – Tom
App: Toms Option Tools
Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.
Other times I will have other charts may work to amplify my educational points.
Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.
Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.
Disclaimers
Stock and options trading has large potential rewards, but also large potential risk.
You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.
This is neither an offer to buy/sell/ or recommend a particular stock or option.
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.
No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
Disclaimer of Warranties and Liabilities Tom Gentile and TomsTradingRoom, LLC including employees, consultants, and editors (“Publisher”) cannot and do not warrant the completeness or accuracy of the content found in our areas, or its usefulness for any particular purpose.
Tom Gentile and TomsTradingRoom, LLC also make no promises that our content or the service itself will be delivered to you uninterrupted, timely, secure, or error-free. Under no circumstances will Tom Gentile and TomsTradingRoom, LLC be liable for direct, indirect, incidental, or any other type of damages resulting from your use or downloading of any content on our site.
This includes, but is in no way limited to, loss or injury caused in whole or in part by our negligence or by anything beyond our control in creating or delivering any portion of Tom Gentile and TomsTradingRoom, LLC.
You are agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that Tom Gentile and TomsTradingRoom, LLC will not be liable for any I, investment decision made, or action taken by you, or others based upon reliance on news, information, or any other material published by Tom Gentile and TomsTradingRoom, LLC.
Tom Gentile and TomsTradingRoom, LLC relies on various sources of information that we believe to be accurate and reliable. However, we make no claims or representations as to the accuracy, completeness, or truth of any material contained on our site.
Tom Gentile and TomsTradingRoom, LLC are educational portals, providing content for educational and informational purposes only. Neither Tom Gentile nor TomsTradingRoom, LLC are a broker/dealer. Investors need a broker to trade stocks and options and must meet certain requirements. All securities, futures, and investments data and ideas are offered to self-directed investors. All prices in USD unless noted otherwise.
A full disclaimer can be found here: http://www.tomgentile.com/legal_disclaimers.html.